Counter-terrorism forces detained 14 members of Kataeb Hezbollah late Thursday for allegedly planning a rocket attack on Baghdad's Green Zone, where the US and other embassies as well as state buildings are located.

But the accused were soon handed over to the Hashed al-Shaabi, the umbrella organisation of Iraqi paramilitary groups that has been nominally incorporated into the state.

On Monday, an Iraqi judge ordered the case dropped, Kataeb Hezbollah's military spokesman Jaafar al-Husseini told AFP.

"The judge ordered their release due to a lack of evidence. The arrests shouldn't have happened," he said.

Husseini said they had appeared at a Hashed military tribunal, as Iraq's various security forces each have their own court system.

A Hashed security source confirmed the fighters' release, although a government official said one remained in custody.

"We'll be filing a claim against the premier. The state of law must prevail, not the state of personal whims," Husseini added.

Another Kataeb spokesman, Abu Ali al-Askary, said earlier that the group would sue Kadhemi for abduction.

"Today, we ended all the legal proceedings for the malicious accusations against our brothers, and we will sue Kadhemi for kidnapping," he said in a written statement.

- 'Embarrass' Kadhimi -

An Iraqi government official told AFP that 13 of the 14 were released on bail but insisted the charges have not been dropped.

"The detainee that remains in custody is the one that the evidence undeniably points to," the official said.

According to Iraq's Joint Operations Command, the arrest warrants for the 14 ere based on the country's counter-terror law, which carries the death penalty.

It also said the counter-terrorism forces had seized two rocket launchers during the raid as proof of the planned attack.

Since October, nearly three dozen missile attacks have targeted either US troops or diplomats, killing three US military personnel, one British and one Iraqi.

The US has accused Kataeb Hezbollah and other pro-Iran factions of carrying out the attacks and has bombed Kataeb bases across Iraq in retaliation.

Iraqi authorities had not previously taken direct action against Kataeb, fearing a possible fallout from confronting a group with such close links to neighbouring Iran.

Kataeb has never claimed responsibility for the attacks but has hailed them as a way to pressure US troops out.

As part of a new strategic dialogue with the US launched this month, the US has vowed to keep reducing troop levels and Iraq has pledged to hold the perpetrators of rocket attacks accountable.

"If Kataeb Hezbollah succeeds in shielding its fighters from justice, it will embarrass the Kadhemi government," wrote Michael Knights of the Washington Institute for Near East Policy last week.

- 'Protect the Americans' -

Kataeb is deeply suspicious of Kadhemi, accusing him of complicity in the US killing of Iranian General Qasem Soleimani and the Hashed's deputy chief in January.

After its fighters were released on Monday, it issued a statement insisting its weapons would never be "handed over, restricted or counted" by the Iraqi state.

Photographs of the released men showed a dozen fighters in sand-coloured uniforms burning American and Israeli flags, and stepping on pictures of Kadhemi's face.

"He wanted to send a message that he would attack factions that reject the American presence and tell the Americans that he could protect them," Husseini told AFP.

Kataeb Hezbollah first began fighting US troops in 2003 during the American-led invasion to topple Saddam Hussein.

According to Knights, it is the top armed Iraqi ally of Iran's Revolutionary Guard Corps, which Washington has designated as a "terrorist" group.

Thursday's raid was the boldest act yet against pro-Iran groups based in Iraq, which has long had to walk a fine line between its two main allies, Tehran and Washington.